October 21, 2005

It's Morning in Medicaid

How did this manage to slide by unnoticed? (Warning, you have to click past the advert.)

U.S. Gives Florida a Sweeping Right to Curb Medicaid
By Robert Pear
Published: October 20, 2005

WASHINGTON, Oct. 19 - The Bush administration approved a sweeping Medicaid plan for Florida on Wednesday that limits spending for many of the 2.2 million beneficiaries there and gives private health plans new freedom to limit benefits.

The Florida program, likely to be a model for many other states, shifts from the traditional Medicaid "defined benefit" plan to a "defined contribution" plan, under which the state sets a ceiling on spending for each recipient.

Children under the age of 21 and pregnant women will be exempt from the limits.

Medicaid is, of course, the federal/state system for insuring the poor (Medicare insures the aged and the disabled). Traditional Medicaid is a classic "defined benefits" plan, where the state decides on the benefits and then shops for the cheapest way to pay for them; when such plans run into financial trouble, their only alternatives are to cut benefits or raise taxes, neither of which is politicall palatable.

Florida's new system is a "defined contribution" plan, joining a number of other states that have gotten federal wavers to shift from defined benefits to defined contributions or otherwise reform their broken Medicaid programs.

"Defined contribution" has long been considered the Holy Grail for libertarian and conservative analysts of programs like Medicare, urged by both the Cato Institute and the Heritage Foundation; it relies upon consumer choice to keep costs down. Cato writes:

Under the traditional defined benefits approach, an institutional purchaser such as an employer determines what range of services it will cover, then seeks or creates a plan that will provide those services for an acceptable price. It has become increasingly difficult to sustain a defined benefit system. A steady stream of emerging technologies requires an equally steady stream of decisions about which ones will be covered by the plan. Moreover, it has become nearly impossible to provide such benefits economically, in the face of rising health care inflation and increasingly impotent cost-cutting tools.

In contrast, under defined contribution, the employer determines up front how much it will spend for health care, then typically provides an array of options from which beneficiaries can choose (Wye River Group on Healthcare et al., Parrish 2001, Blumenthal 2001). Those options can assume various forms. In the oldest, most familiar version, the contribution essentially represents a voucher for a conventional health plan. The employer assembles a collection of plans from which employees can choose, and then defines its own contribution according to the least expensive of those plans.

Unlike a defined-benefits plan, under the new system, recipients will be able to select more expensive health-care plans than the state is willing to pay for, so long as the recipient picks up the rest of the tab. The recipient gets an expensive plan for little of his own money, and the state keeps its own costs down.

Florida is not the first state to make the transition, of course; but I believe they are the biggest. And while states like Vermont have pilot programs, Florida is actually implementing the changes system wide.

The new Florida plan also incorporates private medical care into the state Medicaid program:

Joan C. Alker, a senior researcher at the Health Policy Institute of Georgetown University, said: "Florida's proposal is one of the most far-reaching and radical proposals we've seen to restructure Medicaid. The federal government and the states now decide which benefits people get. Under the Florida plan, many of those decisions will be made by private health plans, out of public view"....

For each beneficiary, Florida will pay a monthly premium to a private plan. Insurance plans will be allowed to limit "the amount, duration and scope" of services in ways that current law does not permit.

The Florida plan includes many of the very same features that President Bush has proposed for national Medicaid. From the New York Times article:

Recipients must select a private health-care "Medicaid" plan. If they do not, the state will automatically enroll them in a private plan of the state's choosing.

Recipients can choose to completely opt out of the Medicaid system; in that case, Medicaid will partially subsidize the employee share of an employer-sponsored health-insurance program (the article doesn't say how this works with the self-employed). Such persons will still pay the same co-payments, and they will have the same deductables as other members of that same employer-sponsored health insurance.

Recipients who enroll in weight-loss or stop-smoking programs will receive Medicaid subsidies to help pay for them.

The state and feds will pool money to spend up to $1 billion per year on hospitals that treat a large number of indigent or uninsured patients.

President Bush has been flogging Medicaid reform since his first days in office, at least since August, 2001. But the administration has finally begun to focus like a laser beam (as Clinton used to say) on presenting a fleshed-out proposal... which likely will look a lot like the Florida program.

We certainly could do worse; we're doing worse right now! But with these reforms, most of the projections of massive future liabilities will melt away, because market forces will actually hold costs down -- for the same reason that Cadillacs don't cost a million dollars: too much competition. Perhaps a successful program in the fourth largest state in the United States will spur Congress finally to enact such reforms nationwide and encourage other states to follow suit.

Then Medicare could be reformed the same way; and the public-private partnerships in Medicare/Medicaid could remove some of the terror on the Left, allowing meaningful Social Security privatization before the entire system crashes and burns. Although privatization of "entitlement" programs is inherently conservative, it is not inherently anti-Leftist. They're only against it because conservatives favor it.

I expect only two of these (probably Medicaid and Medicare) to be enacted during Bush's presidency; but that in itself would be a stunning conservative domestic legacy, especially coupled with his tax cuts, with the Patriot Act and other criminal justice reforms, and (I still hope) general tort reform. As we begin to see the benefits of a free market in what was previously thought to be sanctified to dictatorial bureaucracy, anything could happen.

Hatched by Dafydd on this day, October 21, 2005, at the time of 9:51 PM

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Comments

The following hissed in response by: John Weidner

Sure it's anti-leftist. It's moving the marketplace right into the middle of a big government program.

The essence of the left is to oppose the marketplace, which is, simply, people choosing to do what they want. The left always favors governent because only government can over-rule the market, and the goal of the left is always control, and to have ordinary people weak and dependent, so they can be controlled.

To allow choice in a government program is a stealthy way to spoil their game. And since dreams of shrinking government always seem to fail, introducing choice is the next best thing. The President calls it the Ownership Society. Many conservatives are not mentally flexible enough to "get it."

The above hissed in response by: John Weidner at October 21, 2005 11:29 PM

My friend and co-conspirator of this website, Brad Linaweaver, a longtime libertarian of the Right, defines the essence of Socialism as the belief that the government is responsible for supplying all the necessities of life to every citizen.

If we take that definition, then Socialism is not incompatible with the Market: in this case, Medicaid is still a Socialistic program, because it's supplying one necessity of life -- medical insurance -- to one segment of the public (the poor)... even so when market forces are introduced, since they're only being used to reduce the cost, hence increase the supply, of the welfare produce (health insurance, in this case).

So a Socialist could embrace Medicaid privatization, since it allows him to give away more government services -- while a conservative could embrace it because it's using market forces to reduce the cost of those services.

In fact, once you reach the point of a post-economic society, you can have absolute Socialism (all actual necessities of life supplied by the government) and absolute Capitalism (unfettered free market) existing happily side by side.

Imagine if, for example, technological improvements allowed us to supply all the actual biological necessities of life for a tax that was equivalent (in 2005 dollars) to $5 per year per person... and you could do whatever you wanted with all the rest of the money you earned. You wouldn't even miss it.

Medical insurance is not a necessity of life. People can and do live without it here in the USA. These people also can and do get medical care. As long as humans live in material bodies run by chemistry with a limited lifespan, we will never get to a post-economic society. The laws of thermodynamics do not allow the existence of free lunches. Someone will always have to pay for scarcity.

The above hissed in response by: cdquarles at October 22, 2005 12:27 AM

It can't be defined, as long as we live in material bodies run by chemistry with a limited lifespan. I know this is a tautology, but we will always have to have an economy because we will always have to make choices in the face of scarcity. Time is the most limited thing we have in this life.

The above hissed in response by: cdquarles at October 24, 2005 4:41 PM

It can't be defined, as long as we live in material bodies run by chemistry with a limited lifespan.

Eh? Of course it can be defined. There are many defintions of the term (which is why I asked you yours), some of which I agree with, others I reject. Here is mine:

Dafydd's definition of a post-economic society: a society in which no one is required to work in order to attain the basic biological necessities of life (weak PES) or everything necessary for a satisfying life for nearly everybody (strong PES).

In other words, when the necessities are so cheap that they are essentially free. Star Trek "replicators."

This doesn't mean that everything you may want is likewise free; original art, performances, new recipes, and even human servants would likely be very expensive indeed. But in a strong PES, everyone can live fulfilling, satisfying lives without being obliged to toil as we must today... which is already very different than how most folks had to toil in the twelfth century.

(Since the Earth is not a closed system, I'm not sure how you drag the laws of thermodynamics into it.)

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